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NBT Bancorp Inc. Announces Record Net Income of $112.6 Million and Diluted Earnings per Share of $2.56; Declares Cash Dividend

Jan. 28, 2019 4:20 p.m. ET

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NBT Bancorp Inc. Announces Record Net Income of $112.6 Million and Diluted Earnings per Share of $2.56; Declares Cash Dividend

NORWICH, N.Y., Jan. 28, 2019 (GLOBE NEWSWIRE) -- NBT Bancorp Inc. ("NBT" or the "Company") (NASDAQ: NBTB) reported record net income and diluted earnings per share for the year ended December 31, 2018.

Net income for the year ended December 31, 2018 was $112.6 million, up 37.0% from $82.2 million for the prior year driven by net interest margin expansion, loan growth, strong asset quality and a reduction in tax expense due to tax reform. Diluted earnings per share for the year ended December 31, 2018 was $2.56, as compared with $1.87 for the prior year, an increase of 37%.

Net income for the three months ended December 31, 2018 was $28.7 million, down 3.9% from $29.8 million for the third quarter of 2018 and up 62.5% from $17.6 million for the fourth quarter of 2017. Diluted earnings per share for the three months ended December 31, 2018 was $0.65, as compared with $0.68 for the prior quarter, a decrease of 4.4%, and $0.40 for the fourth quarter of 2017, an increase of 63%.

Highlights:

-- Diluted earnings per share up 37% from prior year
-- Earnings in excess of $100 million for the first time in the 163 year
history of the Company
-- Loan growth for the year ended December 31, 2018 of 4.6%
-- Average demand deposits for the year ended December 31, 2018 up 4.7% over
2017
-- FTE net interest margin of 3.58% for year ended December 31, 2018 up 11
bps from 2017
-- Recognized a one-time $5.5 million tax benefit in the fourth quarter
-- Recorded a $6.6 million loss on securities sold in the fourth quarter
related to the restructuring of the investment portfolio
-- Full cycle deposit beta of 6.9% through the quarter ending December 31,
20181

"As our 2018 results demonstrate, NBT had a strong year. We achieved record net income for the sixth consecutive year and a new annual EPS record," said NBT President and CEO John H. Watt, Jr. "This strong performance was delivered by a focused and aligned team across all lines of business. They concentrate on the fundamentals of our business, including low-cost deposit gathering, loan growth and strong asset quality, while continuing to grow our fee-based business, including the RPS acquisition in the second quarter. At the same time we continued to invest in enhancing the customer experience and digitizing our offerings. As we continue to grow the Company and build shareholder value, we were pleased to increase the cash dividend paid to shareholders on two occasions in 2018 for a combined increase of 13%."

Net interest income for the year ended 2018 was $305.6 million, up $22.1 million, or 7.8%, from 2017. The fully taxable equivalent ("FTE") net interest margin of 3.58% for the year ended December 31, 2018, was up from 3.47% for the year ended December 31, 2017 primarily due to asset yields increasing 24 basis points ("bps"), more than offsetting the 20 bp rise in the cost of interest bearing liabilities. Average interest earning assets were up $320.1 million, or 3.9%, for the year ended December 31, 2018, as compared to the same period in 2017, driven by a $406.3 million increase in loans that was partially offset by a $81.4 million decrease in securities. Interest income increased $34.8 million, or 11.3%, due to the increase in earning assets combined with a 24 bp improvement in loan yields. Interest expense was up $12.7 million, or 49.1%, for the year ended December 31, 2018 as compared to the same period in 2017 resulting primarily from a 20 bp increase in rates on interest bearing liabilities driven by higher borrowing costs and a 14 bp increase in the cost of interest bearing deposits, combined with an increase in average interest bearing liabilities of $173.0 million. The Federal Reserve has raised its target fed funds rate nine times from December 2015 through December 2018 for a total of 225 bps. During this same cycle of increasing rates, the Company's deposit rates have increased by 15 bps, resulting in a full cycle deposit beta of 6.9%.

Net interest income was $78.9 million for the fourth quarter of 2018, up $1.3 million, or 1.7%, from the previous quarter. The FTE net interest margin was 3.61% for the three months ended December 31, 2018, up 4 bps from the previous quarter, as higher rates on average earning assets were partially offset by higher funding costs. Interest income increased $2.3 million, or 2.6%, as the yield on average earning assets increased 9 bps from the prior quarter to 4.14%, combined with an increase in average interest earning assets of $38.7 million, or 0.4%, driven by the increase in average loans of $36.8 million. Interest expense was up $1.0 million, or 9.1%, as the cost of interest bearing liabilities increased 6 bps to 0.77% for the quarter ended December 31, 2018, driven by interest-bearing deposit costs increasing 6 bps with increased short-term borrowings cost.

Net interest income was $78.9 million for the fourth quarter of 2018, up $5.4 million, or 7.4%, from the fourth quarter of 2017. The FTE net interest margin of 3.61% was up 9 bps from the fourth quarter of 2017. Interest income increased $10.3 million, or 12.8%, as the yield on average earning assets increased 30 bps from the same period in 2017, and average interest earning assets increased $338.2 million, or 4.0%, primarily due to the $347.9 million increase in average loans. Interest expense increased $4.9 million, or 71.8%, as the cost of interest bearing liabilities increased 31 bps, driven by interest-bearing deposit costs increasing 23 bps combined with the increase in short-term borrowing costs.

Noninterest income for the year ended December 31, 2018 was $124.8 million, up $3.5 million, or 2.9%, from the same period in 2017. The increase from the prior year was driven by higher retirement plan administration fees and an increase in other noninterest income that was partially offset by net securities losses in 2018. Retirement plan administration fees increased due to the acquisitions of Retirement Plan Services, LLC ("RPS") in the second quarter of 2018 and of Downeast Pension Services in the second quarter of 2017. In the fourth quarter of 2018, the Company restructured the investment portfolio by selling $109 million lower yielding bonds and reinvesting the proceeds in higher yielding bonds, which resulted in a $6.6 million loss on securities sold. Other noninterest income in 2018 increased compared to the same period of 2017 due to non-recurring gains recognized in 2018. Excluding net securities (losses) gains, noninterest income for the year ended December 31, 2018 would have been $131.1 million, up $11.7 million, or 9.8%, from the same period in 2017.

Noninterest income for the three months ended December 31, 2018 was $25.9 million, down $7.4 million, or 22.3%, from the prior quarter and down $5.5 million, or 17.6%, from the fourth quarter of 2017. Excluding net securities (losses) gains, noninterest income for the three months ended December 31, 2018 would have been $32.9 million, comparable to the prior quarter and up $3.3 million, or 11.0% from the fourth quarter of 2017. The increase from the fourth quarter of 2017 was primarily due to higher retirement plan administration fees resulting from the acquisition of RPS in the second quarter of 2018 and higher other noninterest income due primarily to swap fees.

Noninterest expense for the year ended December 31, 2018 was $264.6 million, up $18.9 million, or 7.7%, from the same period in 2017. The increase from the prior year was driven by higher salaries and employee benefits due to the retirement plan services acquisitions in 2018 and 2017, higher incentive compensation and wage increases for over 60% of our employees from the Company's commitment to invest a portion of the tax reform benefit in our employees.

Noninterest expense for the three months ended December 31, 2018 was $68.9 million, up $2.4 million, or 3.6%, from the prior quarter and up $5.5 million, or 8.6%, from the fourth quarter of 2017. The increase from the fourth quarter of 2017 was driven by an increase in salaries and employee benefits expenses primarily due to the RPS acquisition, wage increases related to tax reform initiatives and higher incentive compensation associated with business growth. The increase from the prior quarter was primarily due to increases in salaries and employee benefits due to an increase in medical costs, an increase in professional fees and advertising expense due to timing of initiatives and an increase in other noninterest expense. The increase in other noninterest expense was primarily due to the timing of contributions and $0.5 million in non-recurring items.

Income tax expense for the year ended December 31, 2018 was $24.4 million, down $21.6 million, or 46.9%, from the same period of 2017. The effective tax rate of 17.8% in 2018 was down from 35.9% for the same period in the prior year. The decrease in income tax expense from the prior year was due to the lower effective tax rate resulting from the Tax Cuts and Jobs Act ("TCJA"), a $5.5 million tax benefit recorded in the fourth quarter of 2018 primarily related to one-time income tax return accounting method changes during the fourth quarter of 2018, combined with the $4.4 million estimated non-cash charge related to the enactment of the TCJA in 2017 for the Company's deferred tax assets due to the tax rate reduction. This was partially offset by a higher level of taxable income and lower tax benefit from equity-based transactions. Excluding the tax benefit from equity-based transactions, the tax benefit in the fourth quarter of 2018 and the TCJA charge in 2017, the effective tax rate was 22.2% and 33.8% for the years ending December 31, 2018 and 2017, respectively.

Income tax expense for the three months ended December 31, 2018 was $0.7 million, down $7.8 million, or 91.4%, from the prior quarter and down $15.0 million, or 95.3%, from the fourth quarter of 2017. The effective tax rate of 2.5% for the fourth quarter of 2018 was down from 22.3% for the third quarter of 2018 and down from 47.1% for the fourth quarter of 2017. The decrease in income tax expense from the prior quarter was primarily due to one-time income tax return accounting method changes during the fourth quarter of 2018. The decrease in income tax expense from the fourth quarter of 2017 was due to the lower effective tax rate resulting from the TCJA, and the income tax return accounting method changes during the fourth quarter of 2018, combined with the $4.4 million estimated non-cash charge related to the enactment of the TCJA in 2017 for the revaluation of the Company's deferred tax assets due to the tax rate reduction. This was partially offset by a higher level of taxable income.

Asset Quality

Net charge-offs of $25.8 million for the year ended December 31, 2018 were down as compared to $26.7 million for the same period of 2017. Provision expense was $28.8 million for the year ended December 31, 2018, as compared with $31.0 million for the same period of 2017. Annualized net charge-offs to average loans for the year ended December 31, 2018 was 0.38% as compared with 0.42% for the same period of 2017.

Net charge-offs of $6.8 million for the three months ended December 31, 2018 were up as compared to $5.7 million for the prior quarter and comparable to the $7.0 million for the fourth quarter of 2017. Provision expense was higher at $6.5 million for the three months ended December 31, 2018, as compared with $6.0 million for the prior quarter and lower compared with $8.2 million for the fourth quarter of 2017. Annualized net charge-offs to average loans for the fourth quarter of 2018 was 0.39%, up from 0.33% for the prior quarter and down from 0.43% for the fourth quarter of 2017.

Nonperforming loans to total loans was 0.44% at December 31, 2018, up 3 bps from 0.41% for the prior quarter and down 3 bps from 0.47% at December 31, 2017. Past due loans as a percentage of total loans were 0.55% at December 31, 2018, up from 0.53% at September 30, 2018 and down from 0.63% at December 31, 2017.

The allowance for loan losses totaled $72.5 million at December 31, 2018, compared to $72.8 million at September 30, 2018 and $69.5 million at December 31, 2017. The allowance for loan losses as a percentage of loans was 1.05% (1.10% excluding acquired loans) at December 31, 2018, compared to 1.06% (1.11% excluding acquired loans) at September 30, 2018 and 1.06% (1.12% excluding acquired loans) at December 31, 2017.

Balance Sheet

Total assets were $9.6 billion at December 31, 2018, up $419.6 million, or 4.6%, from December 31, 2017. Loans were $6.9 billion at December 31, 2018, up $304.1 million, or 4.6%, from December 31, 2017. Total deposits were $7.4 billion at December 31, 2018, up $197.6 million, or 2.8%, from December 31, 2017, reflecting growth in core and municipal deposits. Stockholders' equity was $1.0 billion, representing a total equity-to-total assets ratio of 10.65% at December 31, 2018, compared with $958.2 million or a total equity-to-total assets ratio of 10.49% at December 31, 2017.

Dividend

The Board of Directors approved a first-quarter 2019 cash dividend of $0.26 per share at a meeting held today. The dividend will be paid on March 15, 2019 to shareholders of record as of March 1, 2019.

Corporate Overview

NBT Bancorp Inc. is a financial holding company headquartered in Norwich, N.Y., with total assets of $9.6 billion at December 31, 2018. The Company primarily operates through NBT Bank, N.A., a full-service community bank and through two financial services companies. NBT Bank, N.A. has 151 banking locations in New York, Pennsylvania, Vermont, Massachusetts, New Hampshire and Maine. EPIC Retirement Plan Services, based in Rochester, N.Y., is a full-service 401(k) plan recordkeeping firm. NBT Insurance Agency, LLC, based in Norwich, N.Y., is a full-service insurance agency. More information about NBT and its divisions is available online at: www.nbtbancorp.com, www.nbtbank.com, www.epic1st.com and www.nbtinsurance.com.

Forward-Looking Statements

This news release contains forward-looking statements. These forward-looking statements involve risks and uncertainties and are based on the beliefs and assumptions of the management of NBT and its subsidiaries and on the information available to management at the time that these statements were made. There are a number of factors, many of which are beyond NBT's control, which could cause actual conditions, events or results to differ significantly from those described in the forward-looking statements. Factors that may cause actual results to differ materially from those contemplated by such forward-looking statements include, among others: (1) competitive pressures among depository and other financial institutions may increase significantly, including as a result of competitors having greater financial resources than NBT; (2) revenues may be lower than expected; (3) changes in the interest rate environment may reduce interest margins; (4) general economic conditions, either nationally or regionally, may be less favorable than expected, resulting in, among other things, a deterioration in credit quality and/or a reduced demand for credit; (5) legislative or regulatory changes, including changes in accounting standards and tax laws, may adversely affect business and results; (6) NBT's ability to successfully integrate acquired businesses and employees; and (7) adverse changes may occur in the securities markets or with respect to inflation. Forward-looking statements speak only as of the date they are made. Except as required by law, NBT does not update forward-looking statements to reflect subsequent circumstances or events.

Non-GAAP Measures

This press release contains financial information determined by methods other than in accordance with accounting principles generally accepted in the United States of America ("GAAP"). These measures adjust GAAP measures to exclude the effects of acquisition related intangible amortization expense on earnings and equity as well as providing a FTE yield on securities and loans. Where non-GAAP disclosures are used in this press release, a reconciliation to the comparable GAAP measure, is provided in the accompanying tables. Management believes that these non-GAAP measures provide useful information that is important to an understanding of the results of NBT's core business as well as provide information standard in the financial institution industry. Non-GAAP measures should not be considered a substitute for financial measures determined in accordance with GAAP and investors should consider NBT's performance and financial condition as reported under GAAP and all other relevant information when assessing the performance or financial condition of NBT.

(1) The change in the Company's quarterly deposit costs from December 31, 2015 to December 31, 2018 of 0.15% divided by the change in Federal Reserve's target fed funds rate from December 2015 to December 2018 of 2.25%

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